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VIEWPOINT: ARE YOU COVERED FOR DISABILITY?

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This article is the fourth in a series of six that explores six common mistakes that can negatively impact one’s personal financial situation.

Mistake number four: not realising the importance of disability cover

Disability cover is there to protect the lifestyle of an individual and his or her dependants in the event that they cannot perform their occupation, or part of it, any longer.

According to a study conducted by the Association for Savings and Investments of South Africa (ASISA) in 2013, the insurance gap, which is the difference between existing disability cover and the actual insurance need of South African earners, has widened to a staggering R14,7 trillion. This equates to an average disability cover shortfall of R1,1 million for South African earners between the ages of 18 and 65.

Most alarming is the finding that the group most critically underinsured is made up of those who earn more than R150 000 a year. Families of these individuals will have a standard of living that will be impossible to maintain if something were to happen to the main breadwinner. It is therefore crucial that adequate disability cover be in place should the worst happen.

According to the ASISA study, South African earners would on average need to increase their monthly disability premiums, as a percentage of their earnings, by 1,8% to reach a desired level of disability cover.

One of the main causes of underinsurance amongst professionals is the fact that they fail to update their product provider when circumstances change (for example a salary increase).

When a member joins and takes out a policy, typically at the start of their career, an appropriate level of disability cover is provided in line with the information supplied. However, salary inflation tends to be much higher among professionals in the early years of their career, meaning that the cover they have may not be appropriate to their changing needs.

It is important that professionals regularly inform their financial adviser or product provider of a change in their circumstances, to ensure they have the right amount of cover for themselves and their families.

Author: Tiffany Boesch CA(SA) is group financial director of PPS